The final software business model we look at is in complete contrast to the previous models where the business is about the output of the software, whether this is creation of the software itself or the outcomes it generates. The software supporting a service model intentionally relegates the software system to a supporting role that forms no part of the description of the service being sold. This is not to say that the software becomes irrelevant in this model; it's about the software being a mechanism to allow the delivery of service features.
This model is more often used for departments within larger organizations, especially where there's a reliance on in-house developed resources for supporting its operations. A successful mainstream example of this model in use is Uber; an Internet based taxi service whose operation is dependent on the use of their phone app to provide customers with software features to request rides. These software features are used to facilitate everything from capturing journey details and assignment of the most suitable driver, through to payment for the journey and facilitation of other information.
The software supporting a service model is unique in the way that it allows you to make money as the software is being developed. This provides several advantages when it comes to startup costs and risk reduction:
- Lower entry barriers: Unlike the other software business models, you can start trading without writing any code, therefore allowing you to start your business quickly
- Fund software development inline with services sold: Not having to develop your software system upfront means that you can use money generated from service sales to fund the software system development. This means that you avoid the possibility of investing time into a software project that doesn't generate enough money to justify the time invested, or having your vision of the business being disrupted by the need to satisfy the demands of investors your have received money from to fund the software development costs
- Can make unprofitable services highly profitable: Processes that have high time costs can often be automated through the use of software, hence reducing the costs associated with providing a service in order to improve profitability to a point that would otherwise be impossible
- Opportunities for new service categories to be delivered: Known in business circles as Blue Ocean Strategy, the adaption of business services to deliver unique elements not offered elsewhere can be achieved through the use of software. This can result in being able to target new customers who are willing to pay a premium, making a significant impact on profit potential, especially if you are operating in a saturated market that forces you to operate on razor thin profit margins to remain competitive
- Reactive software design: The ability to sell services before designing your software allows you to identify first hand what the software needs to do in order to support your services. This could be to improve the quality of your services in order to give you a unique selling point, or more often than not, to allow you to be more efficient so that you can either increase your profit margins or be more price competitive
Although software supporting a business has advantages in getting started and the types of flexibility it offers to reduce risks associated with other models, it also has several unique disadvantages such as:
- Software development is a cost: No matter how you look at its contribution to the business, every hour spent on further developing the software is a cost that needs to be funded by time spent on money making activities. This means that there is a need to justify software feature development on the basis of how it supports services being sold to become more profitable or to capture new customers
- Software development is dictated by service needs: The success of the business is dependent on the services being sold and not necessarily the software; hence the immediate needs of the services will dictate what is viable to develop as part of the software system. This isn't good if the features you want to develop can't be justified by the number of paying service clients it will benefit
- Software development competes against service time: If you are personally delivering the services that the software is designed to support, there is the scope for conflict to occur in your time management regarding how much time you dedicate to services you sell and the time you invest into the software's development. Limiting your time on the software development in order to generate income from your services will result in the software taking longer to launch for supporting your services, which may result in lost opportunities to maximize profits, to evolve services in ways that win new sales, or simply to retain existing clients through increased satisfaction and/or price competitiveness that the software system would allow through supporting the business operations
The software supporting a service model is possibly the easiest model to execute that doesn't require upfront investment and minimizes the risk of developing unused software features that erode profitability. With options to develop the software as the services are being delivered, it is possible to learn about the software requirements as you deliver your service, meaning that you are able to fund the research and development of your software system from selling your services before starting software development.
Success with this model requires you to fully understand the role of the software in supporting the services being sold. With the software itself not directly responsible for making money, the software features need to be strategically designed to support the business activities that generate money, which could be to produce more sales, retain customers or increase efficiency for improved profit margins. Understanding how to identify the purpose of the software in this model is the difference between your software being a critical component of a successful business or failing to provide any meaningful support that justifies the expense of the software development.
There is an importance to allocate the right amount of time between money making activities that the software supports and the development of the software. Even though the software development is an initial cost to the wider business, it is the software component that you are developing that can be used to open or take advantage of opportunities that increase your earning potential. Neglecting your software development in favor of focusing on short term money making activities can damage long term capabilities. This is of concern when opportunities only exist for a limited time, where delaying your software development leads to missing opportunities and resulting in your software having no purpose by the time it is completed.
"When opportunities occur through events but you are unable to respond, you are not smart." | ||
| --Sun Tzu, The Art of War | ||
With this in mind, there is a need to incorporate risk assessment into your project planning, allowing you to weigh up whether the goals of the software you develop are achievable before you invest your time into developing the software.